Battle Over Internet Sales Tax Heats Up

The battle over sales-tax fairness is gaining steam, with bipartisan bills mandating Internet companies to collect sales tax recently introduced in the House and the Senate.

The two bills differ in certain respects, but both provide two options for states to collect sales tax from consumers who purchase goods on the Internet.

States that voluntarily join the Streamlined Sales and Use Tax Agreement can require remote sellers to collect and remit sales and use taxes after 90 days. Twenty-four states have currently joined this agreement.

States that do not wish to become members of SSUTA could collect the taxes only if they adopt certain minimum simplification requirements.

Both bills include a “small-seller exemption,” which exempts retailers whose sales fall below a certain threshold ($500,000 in-state a year in the Senate version, and less than $100,000 in-state or $1 million nationally in the House).

The Senate bill’s sponsors portrayed the issue as a matter of fairness.

“Most small-business people don’t want a government handout. They don’t want special treatment,” said Sen. Dick Durbin (D-Ill.) in a statement. “They just want to be able to compete fairly against other businesses.”

One e-commerce giant, Amazon.com, has thrown its support behind federal legislation for Internet sales tax collection, even though it has opposed most efforts on a state level. But another notable big player, eBay, came out strongly against the bill, saying it “fails to protect small business retailers using the Internet.”

On June 21, JA relaunched its campaign in support of sales tax fairness. The organization said it supports the new bill, saying it shows that “the message is getting through…that the playing field needs to be leveled.”

Owners of ­jewelry ­businesses, however, are registering mixed opinions.

“The threat of having an Internet sales tax will stifle online innovation for small independents,” says Sean Dunn, vice president of J.R. Dunn Jewelers in Lighthouse Point, Fla.

But Jeff Josephson, owner and president of Boca Raton, Fla.–based Raymond Lee ­Jewelers, counters. “If one group of retailers have to pay tax, then e-tailers need to fall into the same category,” he says.

Meanwhile, the fight over sales tax may be moving not just to Congress, but to the courts.

On Nov. 4, Simon Property Group, the country’s largest mall owner, said it had filed a complaint against the state of Indiana in Marion County Circuit Court over Indiana’s failure to collect sales tax from e-commerce giant Amazon.

The lawsuit is being filed after Simon requested the state of Indiana collect sales taxes from Amazon.com, as required under existing Indiana statute. According to The Indianapolis Star, the state has given ­Amazon a pass on collecting sales tax after the company agreed to put four large warehouses in the state.

Laws that require Internet companies to collect sales tax are currently on the books in Arkansas, Connecticut, Illinois, California, Rhode Island, New York, and North Carolina. Laws requiring companies to notify consumers they owe taxes are now in place in South Carolina and Colorado.